Contractors Facing Cancellation Due to Blocked Final Payments: Penalty Nightmare

Contractors who relied solely on down payment loans are now facing penalties after being informed that the final payment loan is unavailable.

Contractors who relied solely on down payment loans are now facing penalties after being informed that the final payment loan is unavailable. With no way to cover the remaining amount through their deposits, confusion is rising among those preparing to move into the Olympic Park Foreon. Financial Supervisory Service (FSS) Chief Lee Bok-hyeon has promised to create protective measures for genuine buyers.

A man in his 40s, referred to as Mr. A, signed a contract for an apartment in Suwon set to be completed next year, based on the developer's promise that down payments would be covered by loans. However, recent changes in the lending regulations have led to a notification that the down payment loan is not possible and that a penalty will be imposed if he cancels the contract. Mr. A commented, "I signed the contract believing that the developer’s promise of a loan for the down payment was reliable, but now that the loan is blocked, I am forced to cancel and face a penalty. I am in a difficult situation."

Due to the tightening of household loans by financial authorities, genuine buyers are experiencing severe confusion. This month, the introduction of the second phase of the Debt Service Ratio (DSR) regulations, which reduces personal loan limits, and additional restrictions imposed by banks have exacerbated the situation. While financial authorities aim to effectively manage household loans while protecting genuine demand, those who need to finalize housing contracts or make remaining payments are finding themselves in a tight spot.

Surge in Household Loans Causes Unintended Harm to Genuine Buyers

According to financial sources on the 4th, household loan balances at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) increased by 9.6259 trillion won by the end of August compared to the end of July. This is the largest increase since January 2016. As the authorities implement strict measures to reduce the surge in household loans, genuine buyers are increasingly suffering.

Cases are emerging where individuals like Mr. A face penalties for canceling contracts due to sudden loan blocks, or find themselves in a bind when they cannot secure final payment loans after paying the interim payments and approaching move-in dates.

Olympic Park Foreon Faces Chaos Ahead of Move-In

Even at the Olympic Park Foreon, the largest reconstruction project since the Dangun era, significant confusion is occurring with just two months before move-in. Major banks have imposed conditional restrictions on providing rental loans, leading to conflicting policies.

KB Kookmin, Woori, and NH Nonghyup banks have decided to restrict conditional rental loans for all housing, including newly sold properties. This measure aims to prevent gap investment demand but creates a crisis for buyers who need rental income to cover the final payment.

A buyer commented, "I planned my financing carefully, but if I can't rent out the property to cover the final payment, am I supposed to lose my opportunity? Should I take out a loan from a secondary financial institution to avoid losing my chance?"

Group Loans and Interest Rate Hikes

Banks are also adjusting group loan interest rates upward due to DSR management reasons. For the Olympic Park Foreon, six banks (KB Kookmin, NH Nonghyup, Hana, Woori, Suhyup, and Busan Bank) have stated that they cannot lower the final payment loan rates and will maintain them at the level of the interim loan rates. With the total amount of interim loans at 2.8 trillion won and final loans at about 1 trillion won, banks are reviewing adding a premium of over 1% to the final payment loan rates.

Need for Protective Measures

Experts argue that sudden household loan regulations are causing unintended harm to ordinary people and that there is a need for a grace period or other measures. Song Seung-hyun, head of the City and Economy, said, “As the government started releasing loans to stimulate demand, transaction volumes increased. When DSR stress was delayed, demand surged and loans increased rapidly. Blocking loans abruptly could be problematic for buyers, so a grace period is necessary.”

The Financial Supervisory Service has taken a step back in response to these genuine buyers' concerns. Lee Bok-hyeon, the Chief of the Financial Supervisory Service, stated at a meeting held at KB Kookmin Bank’s new building in Yeongdeungpo-gu, Seoul, “We will carefully manage the situation to ensure that legitimate housing transactions are not restricted due to loan issues. Even if the trend of managing household loans is slightly delayed, we will ensure that it does not impose undue burdens on genuine buyers.”